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Cobweb model

Summary:
(Dan here…follow the link to the comment section on Kevin Quinn’s somewhat cryptic post to learn more on economics) Muth and Lucas: Call your offices!  On his Marginal Revolution blog, Tyler Cowen describes the recent “purge” in the trucking industry. The pandemic shift in demand towards goods, as opposed to services, produced a big increase in the demand for trucking, which in turn produced a huge response, including a  big increase in the number of small trucking companies. Now that is all being reversed, precipitously, with trucking companies falling like flies–the purge. This all sounds very, very “cobwebby” to me. It was Muth’s article criticizing the cobweb model that inspired Lucas’ “rational expectations revolution.” I am old enough

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(Dan here…follow the link to the comment section on Kevin Quinn’s somewhat cryptic post to learn more on economics)

Muth and Lucas: Call your offices!

 On his Marginal Revolution blog, Tyler Cowen describes the recent “purge” in the trucking industry. The pandemic shift in demand towards goods, as opposed to services, produced a big increase in the demand for trucking, which in turn produced a huge response, including a  big increase in the number of small trucking companies. Now that is all being reversed, precipitously, with trucking companies falling like flies–the purge.

This all sounds very, very “cobwebby” to me. It was Muth’s article criticizing the cobweb model that inspired Lucas’ “rational expectations revolution.” I am old enough to have learned the cobweb model in  a principles course, but I don’t know of any modern texts where it appears. We moderns have read Muth and know that rational expectations kill cobwebs.

Let’s  syllologize:

If ratex is true, then no cobwebs.

Cobwebs.

Ergo, ratex is false.

qed

Dan Crawford
aka Rdan owns, designs, moderates, and manages Angry Bear since 2007. Dan is the fourth ‘owner’.

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